Reverse Mortgage Terms

Published: Dec 1, 2010

3.8

/5.0

(6 Votes)

Reverse Mortgage Terms

203-b limit

From Section 203-b of the National Housing Act, this provides instruction for determining the dollar limit used in each county to determine the amount of the home's value that can be used to get money from a federally insured HECM reverse mortgage.

AARP model specifications

A set of rules provided by AARP (American Association of Retired Persons) to help consumers analyze and compare terms on reverse mortgages.

Acceleration Clause

A clause common in all mortgages that states the conditions on which a lender may demand that the loan be due and payable.

Annuity

A cash payment that you receive on a monthly basis from an insurance company or other entity.

Credit Line

An account that can be used at the borrower's discretion; there is no fixed amount of credit that they have to take, although there is a maximum amount of credit established for the borrower.

Current interest rate

The rate of annualized interest that you pay on the amount borrowed from the lender as established in the note; in the HECM program, it is equal to the one-year rate for US Treasury Securities, plus a margin.

Deferred payment loans (DPL's)

These are usually offered by the state and local government and are designed to allow borrowers to repair or improve their homes through the use of a lump cash sum.

Home Equity Conversion Mortgage (HECM)

This is the only reverse mortgage program that the federal government will insure, through the Federal Housing Administration.

Leftover equity

The amount that either the homeowner or their heirs will receive from the sale of the home; this amount is equal to the sales price less the amount owed on the home and the cost to sell the home.

Margin

This is the amount added to the one-year US Treasury rate to determine the initial interest rate.

Maturity

The date at which a loan must be fully repaid; effectively, the end of the loan term.

Property tax deferral (PTD)

A reverse mortgage that pays the borrowers annual property taxes, usually offered by state or local governments.

Right of rescission

This is the right of the borrower to cancel a home loan within three business days of the loan closing, or signing date.

Tenure advances

A schedule of fixed monthly payment that the borrower receives as long as they live in the home.

Total Annual Loan Cost rate

Also known as TALC, this is the total annualized cost of the reverse mortgage to the borrower, and includes all itemized expenses to obtain the loan.